Wednesday, January 5, 2011

Problems for the Polish government

It would appear that the Polish government's plans to overhaul the pension system is running into difficulties. First, let us have a look at this overhaul:

To curb budget deficits and the growth of debt, the government plans to significantly reduce cash transfers to private pension funds—from 7.3% of employee wages transferred now to just 2.3%. The freed-up cash will go to the state’s pension system, which will operate pension accounts, according to Prime Minister Donald Tusk. The government will be able to cut subsidies to the social security administration, reducing borrowing needs, deficits and debt.

Hmm. Well, there is a phrase for that and it involves the words "state", "grab", "private" and "pensions".

The problems have a good deal to do with the well known inefficiency of the Polish state pension scheme.

It took the state’s pension system years, not weeks or even months, to fine-tune its enormously complicated software system after private pension funds were introduced in 1999. The software—put in place by a private company that it now part of Asseco Poland, Europe’s fifth-largest software vendor by sales—may have been hailed as the best electronic system in European public administration for 2005, but it’s been a bumpy ride.

An even bigger problem is time, or lack thereof. The government wants the new system to operate as of April. This leaves less than three months to get all the necessary laws passed by parliament, approved by the president, printed in the journal of laws, and—most importantly—processed by the byzantine pension organization.

It will need to create additional individual pension accounts for 15 million people. To do that, it needs the specifics of the legislation, which will take many weeks to draft.

To make things worse, the state-run pension system has to lay off 10% of its 50,000 staff.

The process of private pension grabbing freeing up cash for the state-run pension scheme should be interesting to watch.